Global Financial Development Report 2017 / 2018:
Bankers without Borders

Overview

Image
Download the Overview (pdf).

MAIN MESSAGES OF THE REPORT

  • Following a decade of increased globalization, international banking suffered a setback after the global financial crisis.
Cross-Border and Local Claims by Foreign Banks, 2005–15
GFDR 2018 Figure O.1
Some types of flows have been more resilient than others. 
Source: Consolidated Banking Statistics (Ultimate Risk Basis), Bank for International Settlements.
Note: Figures are country-level averages by income level of the borrowing countries over the period 2005–15. Borrowing countries are categorized as high-income and developing countries according to the World Bank’s country classifications as of 2017. Cross-border claims refer to those extended by foreign bank offices outside the borrower’s jurisdiction. Local claims refer to those extended by foreign bank offices within the borrower’s jurisdiction. Total ratios of outstanding values to gross domestic product are provided in each case.

  • Remaining open despite rising protectionism is important for countries to continue to benefit from global flows of funds, knowledge, and opportunity.
The Impact of Global and Regional Banking
GFDR 2018 Figure BO.2.1
The policy makers seem to agree on the importance of international banking—even though global and regional banking are perceived differently.
Source: Financial Development Barometer.

  • However, international banking is no panacea for guaranteeing financial development and stability. There is an important role for policy in maximizing benefits and minimizing costs of international banking. Recent research suggests that for designing effective policies, it is important to keep in mind differences in bank characteristics and home and host country conditions. 
Contribution of Local Deposits to Banks’ Total Funding
GFDR 2018 Fig O.10
Bank characteristics differ a lot and in many cases home and host countries matter a great deal as in local funding choices.
Source: Calculations based on Bertay, Demirgüç-Kunt, and Huizinga 2017.
Notes: NN corresponds to bank subsidiaries from developed countries operating in developed countries. NS corresponds to bank subsidiaries from developed countries operating in developing countries. SN corresponds to bank subsidiaries from developing countries operating in developed countries. SS corresponds to subsidiaries from developing countries operating in developing countries. ND corresponds to domestic banks in developed countries. SD corresponds to domestic banks in developing countries.

  • Encouraging the right type of foreign bank presence or forms of capital flows without causing distortions is challenging.
  • Regulation and supervision of international banking is complex and should involve extensive cross-border coordination.
The-Financial-Trilemma
  • The rise of South-South banking and greater regionalization of banking comes with benefits but also possible risks.
Change in Bank Lending Associated with a 1 Percent Increase in Growth in GDP per Capita
GFDR 2018 Fig O.9
Developing country banks with international operations are less procyclical than domestic counterparts.
Source: Bertay, Demirguc-Kunt, and Huizinga 2017.
Note: The figure shows marginal effects from a regression of bank lending on GDP per capita growth and a number of control variables and bank fixed effects, estimated using a sample of 2,750 banks based in 112 countries (47 high-income, and 65 developing) for the period 2000–15. International bank values are evaluated at the average level of internationalization; that is, the log of the number of countries in which the international bank is active. The coefficients are significant at the 10 percent level or better.
  • After the crisis, there was also a disintermediation trend where cross-border bank credit was substituted with capital markets. 
Volume of Debt Issuance over Time for Real Purposes
GFDR 2018 Figure-O.11
Source: Thomson Reuters SDC Platinum (database).
Note: This figure displays the aggregate amount raised per year for real purposes in corporate bond and syndicated loan markets by high-income (panel a) and developing countries (panel b). Real purposes refer to the exclusion of bonds and loans used for acquisition financing and leveraged buyout operations, refinancing, and capital structure management, as well as other issuances whose purposes cannot be categorized as real investments (such as those with unspecified purposes or with missing information).
  • Fintech developments may have important implications for the global banking landscape.
Fintech “Unicorns”: Fintech Firms with a Valuation of over $1 Billion, 2016
GFDR 2018 Figure B.3.6.1
Source: Adapted from Visual Capitalist 2016.